Hybrid installment loan/savings account

ABSTRACT

A hybrid installment loan/savings account. A financial account is created for an account holder. An amount of money is payed to the account holder, and the amount is charged to the account so that the account has an initial negative balance. Automatic payroll deduction is performed to automatically deduct pay over time from the account holder and apply the deducted pay to the account to pay off the negative balance over time. The automatic payroll deduction continues as the balance turns positive to continue accruing a positive balance in the account via the automatic payroll deduction. Interest is charged on the balance to the account when the balance is negative, and interest is payed on the balance to the account when the balance is positive.

CROSS-REFERENCE TO RELATED APPLICATIONS

[0001] The present application claims priority to provision applicationtitled “COMBINED SAVINGS ACCOUNT/INSTALLMENT LOAN ACCOUNT”, serialnumber 60/151,362, filed Aug. 30, 1999, and which is incorporated hereinby reference.

BACKGROUND OF THE INVENTION

[0002] 1. Field of the Invention

[0003] The present invention relates to installment loans and savingsaccounts. More particularly, the present invention relates to a hybridinstallment loan/savings account.

[0004] 2. Description of the Related Art

[0005] Many banks, savings & loans, loan companies and other types offinancial institutions offer installment loans to customers. With atypical installment loan, the customer is loaned an amount of money, andmust make periodic payments, typically monthly, until the balance (i.e.,the loan amount plus interest) is paid in full. Often, if the customeris employed, automatic payroll deduction is used to deduct pay from thecustomer's paycheck and apply the deducted pay into the loan account topay off the balance. Once the balance is paid in full, any excesspayment is returned to the customer, any automatic payroll deduction isstopped, the loan account is typically closed, and the relationshipbetween the financial institution and the customer typically ends unlessthe loan is refinanced.

[0006] Moreover, many banks and savings & loans offer savings accountswhere customers accrue a positive balance through deposits. Interest ispayed on the positive balance. Typically, withdraws are allowed from asavings account, but withdraws in access of the balance are not allowed.

[0007] Further, some banks and savings & loans provide checking accountswhich pay interest on positive balances. However, negative balances arestrongly discouraged, and fixed penalty amounts are accessed forwithdraws or checks that cause a negative balance to be incurred.

[0008] Therefore, installment loans, savings accounts and checkingaccounts each provide advantages and disadvantages. However, there is aneed for a single type of account which provides various advantages ofinstallment loans, savings accounts and checking accounts.

SUMMARY OF THE INVENTION

[0009] Accordingly, it is an object of the present to combine advantagesof installment loans, savings accounts and checking accounts into asingle type of account.

[0010] More specifically, it is an object of the present invention toprovide a hybrid installment loan/savings account in which an amount ofmoney is loaned to a customer, automatic payroll deduction is applied topay off the loan but continues even after the loan is paid in full,interest is charged when the balance is negative, and interest is paidwhen the balance is positive. In this manner, a customer can useautomatic payroll deduction to pay off the loan amount, and thencontinue the automatic payroll deduction to accrue savings while earninginterest. This type of account is desirable for financial institutionsas a way to maintain an ongoing, positive relationship with a customereven after an installment loan has been paid in full.

[0011] Additional objects and advantages of the invention will be setforth in part in the description which follows, and, in part, will beobvious from the description, or may be learned by practice of theinvention.

[0012] Objects of the present invention are achieved by providing amethod which includes (a) creating an account for an account holder, theaccount having a balance which can be positive or negative; (b)performing automatic payroll deduction to automatically deduct pay overtime from the account holder and apply the deducted pay to the balanceof the account, the automatic payroll deduction continuing irrespectiveof whether the balance is negative or positive; (c) when the balance isnegative, charging interest on the balance to the account; and (d) whenthe balance is positive, paying interest on the balance to the account.

[0013] Objects of the present invention are further achieved byproviding an apparatus which includes a financial account of an accountholder, and a payroll deduction system. The financial account has abalance which can be positive or negative, interest being charged on thebalance to the account when the balance is negative, and interest beingpaid on the balance to the account when the balance is positive. Thepayroll deduction system performs automatic payroll deduction to deductpay over time from the account holder and apply the deducted pay to thebalance of the account. The automatic payroll deduction continuesirrespective of whether the balance is negative or positive.

[0014] Moreover, objects of the present invention are achieved byproviding a method which includes (a) creating an account for an accountholder; (b) paying an amount of money to the account holder, andcharging the amount to the account so that the account has an initialnegative balance; (c) performing automatic payroll deduction toautomatically deduct pay over time from the account holder and apply thededucted pay to the account to pay off the negative balance over time,the automatic payroll deduction continuing as the balance turns positiveto continue accruing a positive balance in the account via the automaticpayroll deduction; (d) charging interest on the balance to the accountwhen the balance is negative; and (e) paying interest on the balance tothe account when the balance is positive.

[0015] Objects of the present invention are also achieved by providingan apparatus which includes a financial account of an account holder,and a payroll deduction system. An amount of money is paid to theaccount holder and charged to the account so that the account has aninitial negative balance. The payroll deduction system performsautomatic payroll deduction to automatically deduct pay over time fromthe account holder and apply the deducted pay to the account to pay offthe negative balance over time. The automatic payroll deductioncontinues as the balance turns positive to continue accruing a positivebalance in the account via the automatic payroll deduction. Interest ischarged on the balance to the account when the balance is negative, andinterest is payed on the balance to the account when the balance ispositive.

BRIEF DESCRIPTION OF THE DRAWING

[0016] These and other objects and advantages of the invention willbecome apparent and more readily appreciated from the followingdescription of the preferred embodiments, taken in conjunction with theaccompanying drawings of which:

[0017]FIG. 1 is a flow chart illustrating the operation of a hybridinstallment loan/savings account, according to an embodiment of thepresent invention.

[0018]FIG. 2 is a diagram illustrating an organization structure forimplementing a hybrid installment loan/savings account, according to anembodiment of the present invention.

DESCRIPTION OF THE PREFERRED EMBODIMENTS

[0019] Reference will now be made in detail to the present preferredembodiments of the present invention, examples of which are illustratedin the accompanying drawings, wherein like reference numerals refer tolike elements throughout.

[0020]FIG. 1 is a flow chart illustrating the operation of a hybridinstallment loan/savings account, according to an embodiment of thepresent invention. Referring now to FIG. 1, in step 10, an account iscreated for an account holder (i.e., a customer of the a financialinstitution, such as, for example, a bank). The account can have abalance which is positive or negative. Typically, when the account isinitially created, an amount of money is loaned to the account holder bythe financial institution, and this amount is charged to the account sothat the account has an initial, negative balance.

[0021] From step 10, the process moves to step 20, where automaticpayroll deduction is performed to automatically deduct pay over timefrom the account holder and apply the deducted pay to the balance of theaccount. Preferably, with the automatic payroll deduction, pay isdeducted and applied to the account at specific time intervals, such asonce a month, or once every paycheck. Therefore, activities must becoordinated between an employer of the account holder and the financialinstitution to set up, initiate and maintain automatic payrolldeduction. Automatic payroll deduction is well-known in the loanindustry, and there are many available systems for setting up andinitiating automatic payroll deduction. Preferably, the automaticpayroll deduction is electronically performed on a scheduled basis, withdeducted pay being electronically transferred to the account. However,the present invention is not limited to electronic payroll deduction,and it is possible for payroll deduction to be performed manually, withthe employer manually sending payments to the financial institution on aregularly scheduled basis. Moreover, in some embodiments of the presentinvention, payments could be made to the financial institution directlyby the account holder.

[0022] From step 20, the process moves to step 30, where, if the balanceon the account is negative, interest is charged on the balance to theaccount. Here, the interest can be charged at specific time intervals,such as monthly or at the time that a payroll deduction is applied tothe account. There are many time intervals at which interest can becharged, and the present invention is not limited to any specific timeinterval. Moreover, there are many different manners to compute interestto be charged, and the present invention is not limited to any specificmanner. The present invention is not limited to any specific interestrate. Further, it is not necessary to charge interest in all embodimentsof the present invention. For example, no interest might be charged whenthe balance is negative, or if the balance is negative up to a specificmaximum amount after which interest might then be charged.

[0023] From step 30, the process moves to step 40, where, if the balanceon the account is positive, interest is payed on the balance to theaccount. The interest can be paid at specific time intervals, such asmonthly or at the time that a payroll deduction is applied to theaccount. There are many time intervals at which interest can be paid,and the present invention is not limited to any specific time interval.Moreover, there are many different manners to compute interest to bepaid, and the present invention is not limited to any specific manner.The present invention is not limited to any specific interest rate.Further, it is not necessary to pay interest in all embodiments of thepresent invention. For example, no interest might be payed when thebalance is positive, or if the balance is positive up to a specificamount after which interest might then be paid.

[0024] As indicated in FIG. 1, automatic payroll deduction is initialedto pay off the loan balance. However, in the present invention, theautomatic payroll deduction does not stop after the balance is paid infull. Instead, the automatic payroll deduction continues so that savingsis accrued in the account. As a result, when the balance is negative,interest can be charged to the account. When the balance is positive,interest can be paid to the account.

[0025] In the present invention, the initially balance of the accountwould typically be negative, as the account would typically be initiatedwith a loan. In a typical situation, the account holder would be able toborrow more money on the account at any time, or after a certain amountof the loan is paid off.

[0026] However, it is not necessary for the account to be initiated witha loan. For example, the account could be initiated with automaticpayroll deduction to accrue savings, with no loan being made. Then, assavings are accrued, money could be withdrawn from the account, or loanscan be made on the account. When the balance is negative, interest ischarged to the account. When the balance is positive, interest is paidon the account.

[0027] There are many different types of agreements which can be used todefine the contractual obligations of the account holder and thefinancial institution. For example, when the account is opened, a“revolving” type of credit agreement might be signed by the accountholder. With a revolving type credit agreement, no further contractdocumentation may be necessary for future withdrawals or deposits to theaccount. Moreover, an agreement might allow the account holder torepeatedly make withdraws from the account or “refinance” the loanportion without the necessity of additional contract documentation beingsigned. In addition, the account holder might be provided with theability to make withdrawals and deposits through an ATM network.

[0028] This type of hybrid installment loan/savings account providesmany advantages for the account holder. For example, it allows theaccount holder a convenient manner to obtain a loan and accrue savingsafter the loan is paid. Further, it provides a way for a financiallytroubled account holder to obtain a loan to pay off debts, learnfinancial discipline by saving money on a scheduled basis to pay off theloan through automatic payroll deduction, and to continue thisdisciplined savings approach to accrue interest bearing savings.

[0029] This type of hybrid installment loan/savings account alsoprovides many advantages for the financial institution. For example, itallows the financial institution to obtain new account holders byissuing loans, and keep these account holders on a long-term basis afterthe loans are paid. Also, the financial institution can accrue a largesaving account base through the automatic payroll deductions. Moreover,many people do not have bank accounts and live paycheck to paycheck. Thehybrid installment account/savings account provides a mechanism forfinancial institutions to reach out to these people, and turn them intogood, long-term customers.

[0030]FIG. 2 is a diagram illustrating an organizational structure forimplementing a hybrid installment loan/savings account, according to anembodiment of the present invention. Referring now to FIG. 2, severalparties would typically be involved in the overall transaction,including, for example, a bank 100, an employer 110, a processing center120 and a branch office 130. A customer applies for an account at branchoffice 130. At this time, the customer would typically be required tocomplete an application form, and provide certain documentation. Forexample, the customer might be required to present personalidentification information, employer identification information, arecent payroll stub, a utility bill or a piece of mail (as proof ofresidence). There are many different types of information which might berequired to apply for an account, and the present invention is notlimited to any specific types of information.

[0031] Then, as indicated by communication line 200, branch office 130would typically provide the obtained information to processing center120. Functions of processing center 120 might include, for example,verifying the customer identification, current address, employer andtelephone numbers.

[0032] As indicated by communication line 210, processing center 120would typically communicate with a payroll department 215 of employer110 to initiate automatic payroll deduction.

[0033] As indicated by communication line 220, processing center 120would also communicate with bank 120 to set up an account 225. Asindicated by communication line 230, payroll department 215 wouldtypically communicate with bank 100 to apply the payroll deduction toaccount 225.

[0034] Processing center 120 could perform many different functions. Forexample, processing center 120 might maintain all account balances on acomputer, maintain and file all original signed account documents,answer customer calls regarding questions of refinancing, providegeneral product information, maintain payroll allotment forms fordifferent payroll departments of different employers, generate and mailmonthly customer balance statements, generate contracts and relateddocuments to branch offices, and/or provide related administrativeduties. By performing such functions, processing center 120 couldoperate as an efficient coordinator of many activities between thevarious parties.

[0035] The various different parties in FIG. 2 represent only onepossible example of parties involved in the overall operation. Forexample, it may not be necessary to use processing center 120. Instead,many of the functions performed by processing center 120 could beperformed by bank 100 and/or branch office 130. Or, processing center120 and branch office 130 could be eliminated, and most activities couldbe performed solely by the bank. Therefore, the present invention is notlimited to requiring all the parties shown in FIG. 2, or having all thespecific functions described for the parties in FIG. 2. Instead, manydifferent variations are possible.

[0036] The present invention relates to financial institutions, such as,for example, banks, savings & loans, credit unions and loan companies.However, the present invention is not limited to any specific types offinancial institutions, and various different types of financialinstitutions might be involved in various aspects of the invention.

[0037] Although a few preferred embodiments of the present inventionhave been shown and described, it would be appreciated by those skilledin the art that changes may be made in these embodiments withoutdeparting from the principles and spirit of the invention, the scope ofwhich is defined in the claims and their equivalents.

What is claimed is:
 1. A method comprising: creating an account for anaccount holder, the account having a balance which can be positive ornegative; performing automatic payroll deduction to automatically deductpay over time from the account holder and apply the deducted pay to thebalance of the account, the automatic payroll deduction continuingirrespective of whether the balance is negative or positive; when thebalance is negative, charging interest on the balance to the account;and when the balance is positive, paying interest on the balance to theaccount.
 2. A method as in claim 1, wherein, when the account isinitially created, an amount of money is paid to the account holder andis charged to the account so that an initial balance of the account isnegative.
 3. A method as in claim 1, wherein the automatic payrolldeduction is electronic payroll deduction initiated in conjunction withan employer of the account holder, the pay being automatically deductedin specific amounts on a scheduled basis.
 4. A method as in claim 3,wherein the automatic payroll deduction continues even when the balanceis positive, until canceled by the account holder.
 5. An apparatuscomprising: a financial account of an account holder, the account havinga balance which can be positive or negative, interest being charged onthe balance to the account when the balance is negative, and interestbeing paid on the balance to the account when the balance is positive;and a payroll deduction system performing automatic payroll deduction todeduct pay over time from the account holder and apply the deducted payto the balance of the account, the automatic payroll deductioncontinuing irrespective of whether the balance is negative or positive.6. An apparatus as in claim 5, wherein, when the account is initiallycreated, an amount of money is paid to the account holder and is chargedto the account so that an initial balance of the account is negative. 7.An apparatus as in claim 5, wherein the payroll deduction system isinitiated in conjunction with an employer of the account holder, toautomatically and electrically deduct pay in specific amounts on ascheduled basis.
 8. An apparatus as in claim 5, wherein the automaticpayroll deduction continues even when the balance is positive, untilcanceled by the account holder.
 9. A method comprising: creating anaccount for an account holder; paying an amount of money to the accountholder, and charging the amount to the account so that the account hasan initial negative balance; performing automatic payroll deduction toautomatically deduct pay over time from the account holder and apply thededucted pay to the account to pay off the negative balance over time,the automatic payroll deduction continuing as the balance turns positiveto continue accruing a positive balance in the account-via the automaticpayroll deduction; charging interest on the balance to the account whenthe balance is negative; and paying interest on the balance to theaccount when the balance is positive.
 10. A method as in claim 9,wherein the automatic payroll deduction is electronic payroll deductioninitiated in conjunction with an employer of the account holder, the paybeing automatically deducted in specific amounts on a scheduled basis.11. A method as in claim 10, wherein the automatic payroll deductioncontinues with the account having a positive balance, until canceled bythe account holder.
 12. An apparatus comprising: a financial account ofan account holder, an amount of money being paid to the account holderand charged to the account so that the account has an initial negativebalance; a payroll deduction system performing automatic payrolldeduction to automatically deduct pay over time from the account holderand apply the deducted pay to the account to pay off the negativebalance over time, the automatic payroll deduction continuing as thebalance turns positive to continue accruing a positive balance in theaccount via the automatic payroll deduction; wherein interest is chargedon the balance to the account when the balance is negative, and interestis payed on the balance to the account when the balance is positive. 13.An apparatus as in claim 12, wherein the automatic payroll deduction isinitiated by the payroll deduction system in conjunction with anemployer of the account holder, the pay being automatically deducted inspecific amounts on a scheduled basis.
 14. An apparatus as in claim 12,wherein the payroll deduction system continues to deduct pay with theaccount having a positive balance, until canceled by the account holder.15. A method comprising: creating an account for an account holder;paying an amount of money to the account holder, and charging the amountto the account so that the account has an initial negative balance;performing automatic payroll deduction to automatically deduct pay overtime from the account holder and apply the deducted pay to the accountto pay off the negative balance over time, the automatic payrolldeduction continuing as the balance turns positive so that a positivebalance continues to accrue in the account with each subsequentdeduction in pay applied to the account; charging interest on thebalance to the account when the balance is negative; and paying intereston the balance to the account when the balance is positive.
 16. A methodas in claim 16, wherein the automatic payroll deduction continues withthe account having a positive balance, until canceled by the accountholder.
 17. An apparatus comprising: means for providing a financialaccount of an account holder, the account having a balance which can bepositive or negative, interest being charged on the balance to theaccount when the balance is negative, and interest being paid on thebalance to the account when the balance is positive; and means forperforming automatic payroll deduction to automatically deduct pay overtime from the account holder and apply the deducted pay to the balanceof the account, the automatic payroll deduction continuing irrespectiveof whether the balance is negative or positive.